$85.4mil Wheat Pool Deficit.

[TOM4CWB]

Ration-Al;

I went back in my documents and this is part of a Message I wrote to Henbent this spring that helps clearify CWB hedging pracitices on PPO's:



TOM4CWB wrote:
This is what Adrian Measner wrote me on February 24th, 2003;

"As you may be aware, the CWB hedges the producer pricing options by selling the futures when producers lock-in a FPC contract or when they lock-in the futures component of a Basis Price Contract (BPC).
THE CWB UNWINDS THIS HEDGE BY BUYING BACK THE FUTURES AS THE CWB PUTS SALES ON THE BOOKS (ESSENTIALLY THE CWB IS BUYING THESE PRODUCERS OUT OF THE POOL ACCOUNT OR OUT OF ALL SALES). THEREFORE, MOST OF THE FUTURES BOUGHT BACK TO DATE WOULD HAVE BEEN PURCHASED AT VALUES HIGHER THEN THE CURRENT MARKET." (EMPHASIS ADDED)

TOM4CWB said: Taking off a hedge BEFORE the specific PPO contracted grain is delivered... is not risk management, it is foolish speculation. The CWB expects me to pay them if the futures goes higher, If I need to buy out of this contract. SO EXACTLY WHY DOESN¡¨T THE CWB HAVE THE OBLIGATION TO HOLD THE FUTURES POSITION UNTIL THEY TAKE DELIVERY OF THIS CONTRACTED GRAIN?

WHAT IS REQUIRED OF ME, SHOULD BE REQUIRED OF THE CWB, if this is to be a fair commercial contract that has legal legitimacy. AGAIN the CWB tells me to sue them, If I don¡¦t think the contract is fair.

THIS CWB PPO management of futures is not commercial, not risk management, and not to the benefit of my farm or your farm."

I practice the CWB sells the PPO grain to the contingency fund at the final pool price... then fiddles around with hedges as they think "looks good" and then puts the remainder of the funds into the contingency fund.

CWB operations are not accountable and do not stand up to the principals of common law... which CWB directors have sworn to uphold... these principals are:

1. The Common Law is based on the Golden Rule, which states;
Do unto others as you would have done unto you,
And the Negative Golden Rule, which states;
Do not do unto others as you would not have others do unto you;

2. The two fundamental principals of common law:
ć Do not infringe upon the Rights, Freedoms or Property of others, and
Keep all contracts willingly, knowingly and intentionally

Common law maxims include:

ć That for every wrong there is a remedy,

ć The end does not justify the means,

ć Fundamental principals cannot be set aside to meet the demands of convenience or to prevent apparent hardship in a particular case,

ć Ignorance of the law is no excuse for breaking the law,

ć Two wrongs do not make a right, and

Probably the most fundamental right of all is,
ć One can enlarge the rights of the people, however they cannot be taken away without their informed consent.

[Ration-Al]

Tom,

you said

"WHAT IS REQUIRED OF ME, SHOULD BE REQUIRED OF THE CWB, if this is to be a fair commercial contract that has legal legitimacy. AGAIN the CWB tells me to sue them, If I don¡¦t think the contract is fair."

I assume that you have a contract with the CWB when you enter into a PPO. You do that of your own free will accepting the terms and conditions of that contract. What is required of you under the terms and conditions of that contract should have absolutely nothing to do with how the CWB manages risk internally. How and when they unwind their hedges and how much money ends of in the contingency fund has zero impact on your ability to freely exercise your rights under the PPO contract.

Why do you want to confuse the issue with your view on the business rationale of the CWB? Do you question the business rationale of your local car dealer when you purchase a vehicle from him. As long as the two of you honor the terms and conditions of the contract what do you care if he profits nothing or a lot from the deal.

I suspect you are going to turn the argument around and say that you disagree with the CWB's management of the PPO's from the perspective of a producer in the pooling system. Again I reiterate that all of the costs of the operation of the PPO's are borne by the participant. The cost of administration, the cost of borrowing and the cost of risk management. And i think that you are correct in stating that the proof will be in the annual statement of the CWB when it comes out. I think that the PPO's are accounted for completely separate from the pooling system and the net result of the operation of the PPO's whether that be positive or negative ends up in the contingency fund.

Last year the contingency fund did end up with a significant balance as a result of the operation of the PPO's. You can characterize that as being unfair to you as a participant of the PPO but those were the rules under which you chose to become a participant and whining about the balance in the contingency fund after the fact is just sour g****s.

[TOM4CWB]

Ration-Al;

You missed my principal main point, that PPO contracts are NOT covered be commercial risk management hedges that can be unwound like a commercial canola hedge.

The CWB wants it both ways, and will keep the futures profit without crediting it to the PPO farmer contract holder if the CWB "feels" like it.

“Arbitrage opportunities will be measured to assess the value of switching to a higher basis level and switching to the pool account. As well, any losses in the futures position need to be accounted for.”

How exactly does the CWB do this?

“There are provisions to aid in controlling liquidated damages: transfers and buyouts.”

The CWB hedges the producer pricing options by selling the futures when producers lock-in a FPC or when they lock-in the futures component of a Basis Price Contract (BPC). Then CWB takes this hedge off by buying back the futures as the CWB does it's sales, instead of taking the hedge off as the specific PPO contracted grain is delivered to fill the PPO contract I hold.

Ration-Al, this is NOT the in the contact terms and conditions, nor are the “provisions to aid in controlling liquidated damages: transfers and buyouts.”

ONLY a monopoly can get away with this.

I as a farmer have no choice but to sign up to this monopoly contacting PPO system, this is not, a optional choice or as you put it:
“You do that of your own free will accepting the terms and conditions of that contract.”

I either take the CWB’s PPO contract or pool;

NO other alternatives.


Ration-Al, since I am the producer filling the coffers of the Contingency Fund, I am curious why you say; “How and when they unwind their hedges and how much money ends of in the contingency fund has zero impact on your ability to freely exercise your rights under the PPO contract.”

Ration-Al, how the CWB manages this risk has a huge impact on the basis the CWB feels justified in charging on the PPO contracts,...

...which is MY money confiscated to pad the CWB’s accounts… many times it doesn’t end up in the contingency fund but ends up in the pooling account which isn’t supposed to happen.

On top, huge losses from PPO’s likely have been encountered in the pool for the 02-03 crop year, as we know the price constantly dropped as the crop year progressed.

Since the CWB said:
“THE CWB UNWINDS THIS HEDGE BY BUYING BACK THE FUTURES AS THE CWB PUTS SALES ON THE BOOKS (ESSENTIALLY THE CWB IS BUYING THESE PRODUCERS OUT OF THE POOL ACCOUNT OR OUT OF ALL SALES). THEREFORE, MOST OF THE FUTURES BOUGHT BACK TO DATE WOULD HAVE BEEN PURCHASED AT VALUES HIGHER THEN THE CURRENT MARKET."

I was told this at the end of February, and didn’t deliver my CPS till June, while there is a good chance the CWB took the hedge off in October 02 at the top of the market! Exactly how much did this cost, and who will pay for this fiasco Ration-Al?

[axiom]

Oh Al, you seem to wallow in all the possibilities different pricing scenarios. And all the array of different programs the CWB could 'arrange ' for the poor bloody farmer.

You smell like a Wheat Board planner and I'll bet you get a Board cheque in the mail every time you fill out your per diem forms. All of your 'planning and scheming' and designing on this site tries to disguise the broader important facts that can easily get lost here:

1. Just as we don't need to simulate wheat growers, when in fact we have wheat growers, we don't need to simulate a Non-Board environment (your idea!!) when we have an open market.

2. Your claims that you are "simply looking for constructive plans that will provide more options and flexibility', keep stumbling on the obvious free market option.

3. You plead, " Let's get over it and move forward with some rational, constructive discussion', when in fact the most rational ideas have been presented in Commodity Marketing in this forum. Try reading them with your finger this time so that you can follow a little better and I'll put the key message in bold so that you can't miss it in this paragraph. THE CWB MUST GRANT LICENSES TO WESTERN FARMER APPLICANTS. According to you the Board is doing such a fine job, so only the radicals and the marginalized will apply for export licenses anyhow. A handful of ineffectuals are hardly going to make any difference.

4. Farmers should always be aware that the CWB neither follows the CWB Act that governs them nor respects the farmers that they serve. If this crown corporation refuses to follow the law, they actually show contempt towards the farmers they serve. As do the Directors. So with all these proposed programs that could come into effect, what makes you think the CWB will follow their own rules, or contracts?

Lastly, farmers are ticked off because their grain was not sold for a good price in a time of low production and high value. There is a big deficit in the pool accounts. Who in the world could, with a straight face, defend the CWB?

[Dyno]

Tom, you said
"Charlie;

I was reflecting on the CWB refusing to take CPS/3CWRS/Feed wheat on the "c" series contract.

It really stinks that the CWB are such a bunch of cowards, that they locked out the lower grades of wheat from the marketing arbitrage of world prices, and forced wheat farmers to sell for less than market value into the non-board domestic market.

How quickly we forget the travisty of justice the CWB got away with,


... with a few smooth comforting words... from CWB spin masters...

we forgive and forget like nothing ever happened...

While young grain farmers are destroyed and have the life blood sapped out of them. What can these folks do... apply for NISA/FIDP... learn to suck on government to survive...

WHat a heritage to leave our next generation!"

What a total crock, maybe its time some producers stood up and acted like men over their part in this deficit, they whined so bad the CWB backed down on refusing the 3Red last summer and subsequently took it in on an ad hoc basis, thereby contributing and magnifying the deficit. Sorry Tom, you can't always have it both ways, first, the CWB are big bad boogeymen for refusing to take the late 3Red (which was the right "commercial" thing to do), then they are dumb marketers for running a deficit as a result. Tom I think you should take up watching curling, you sound so much like one of those "wizards behind the glass" that knows it all but has never thrown a rock.

[TOM4CWB]

Dyno;

Give us a choice...

ALL I ask for my farm and my neighbour's farm... is a choice.

What good is deficit protection... the third pillar of the CWB... if it cannot be used as a support to our farms?

I would gladly leave the CWB alone... if you will allow my neighbours and I a choice to avoid the CWB.

The real crime is that there was any need to restrict grain at all... and that the feds needed to put one cent into the pooling accounts...

If the CWB were the superstar sales team they say they are... then we should have had a $85.4mil surplus in the Wheat Account... and have depositied our cheques by now!

If the CWB is not any smarter than anyone else, why are they there to do just an average job of marketing?

You or I can do an average job of marketing all by ourselves without any help from the CWB DYNO

So why are we paying all these guys at 423 Main... other than to collect high priced saleries and throw us in jail for trying to make an honest living?

[axiom]

Dyno you are saying "its time some producers stood up and acted like men over their part in this deficit"!

If if was 75 years ago, we'da done just that. We've have stood up and hung a licking on every wheat Board manager who ran our pooling accounts into red ground, and then fired the lot of them.

[TOM4CWB]

Axiom;

It is tempting to fire someone... but it appears that Flaman, Ritter, Harder, McCreary are the "managers" that need to be "run off" this fall in the CWB elections.

CWB staffers would not run over top of CWB directors... if they (the CWB directors) didn't allow it.

By the way... Axiom, what about the 150mil in managed futures accounts the CWB is backing... at Trycicle... have you figured this one out?

If these fund managers goof up, won't the pooling accounts be at risk of loosing $150 million?

Why wouldn't the CWB just borrow the money from the feds... instead they are risking our grain money... how could this happen?

Talk about a CWB Board of Speculators... Talking the Director Chatenay... when he asked why this risk should be taken on... they just give the impression we who "worry" about these "little" things should get with the program and stop being so "negative" about everything!

Being a risk manager is hard work, does not come easily... and requires a humble spirit to listen to what the small still voices are saying...

How can we turn the CWB back around... so it will listen?

[axiom]

I tried searching Trycicle, but the one you want is spelled Tricycle if anybody else is searching. Looks like they just got into business They sure stand to make good money wanting a management fee of 4% and a flat fee of 6% Maybe they have cousins in the Wheat Board

[TOM4CWB]

Axiom;

THink about the insider trading opportunities the CWB has with $150mil in futures margin spec accounts being managed by fund managers that they control...

What possibilities!

Makes Martha Stewart look like a butterfly!